Is now the right time for electric cars as company cars?

Monday November 18, 2019

For many company car drivers the tax they are paying has gone up and up over the last few years forcing many drivers and business owners to opt for a cash allowance or just paying for a car out of their own pocket.

However with the ever increasing number of new electric cars on the market and changes to the company car tax for these vehicles, could now be the time to consider the company car again.

Well the answer is yes.

The number of electric cars now on the market and coming out over the next year has increased dramatically. With new cars comes new battery technology and greater range. Many new electric cars now have a range of 250 miles or more. By the end of 2020 there will be cars available with a 500 mile range, or more, which is enough for any drivers and their need in a day. Even if you are a relatively high mileage driver, don’t worry as many cars can be charged to 80% capacity in half an hour or so.

So that is all well and good but why should you consider an electric car as a company car.

The reason is simple. The Benefit in Kind (BiK) tax that you pay on an electric car is dramatically less than that of a petrol, diesel or a hybrid car. The BiK is the tax you pay on any benefit you receive from your employer (even if you are a director of the business) above the normal salary and any dividends. For a company car this is based on the P11D (the value of the vehicle new, less the Road Tax and First Registration Fee). It is also based on the CO2 emissions of the car. Electric vehicles have zero CO2 emissions and so fall into the lowest band for a company car.

For the tax year 2020/2021 the BiK tax on an electric car is zero. Yes nothing at all, no tax! If you then look at tax year 2021/2022 the BiK is only 1% of the P11D value and for tax year 2022/2023 the BiK is only 2% of P11D value.

So if you were to take the example of a Volkswagen e-Golf Auto standard car with a P11D value of £31020 the tax for the next three financial years is as follows.

P11D Value

BiK Percentage

Monthly Tax Payable*

2020/2021 Tax

£31020

0%

£0

2021/2022 Tax

£31020

1%

£5.17

2022/2023 Tax

£31020

2%

£10.34

*Based on a 20% tax payer

If you were then to compare this against the equivalent petrol Golf Hatch 1.5 TSi EVO Match Edition Manual which has a P11D Value of £23890. The tax for this car for the next three financial years is as follows.

P11D Value

BiK Percentage

Monthly Tax Payable*

2020/2021 Tax

£23890

28%

£111.49

2021/2022 Tax

£23890

28%

£111.49

2022/2023 Tax

£23890

28%

£111.49

*Based on a 20% tax payer

Looking at the executive sector and taking the example of a Tesla Model 3 Auto standard car with a P11D value of £42850 the tax for the next three financial years is as follows.

P11D Value

BiK Percentage

Monthly Tax Payable*

2020/2021 Tax

£42850

0%

£0

2021/2022 Tax

£42850

1%

£14.28

2022/2023 Tax

£42850

2%

£28.57

*Based on a 40% tax payer

If you were then to compare this against a traditional diesel executive car in the same price bracket a Mercedes E220d AMG Line Premium Saloon Auto which has a P11D Value of £42250. The tax for this car for the next three financial years is as follows.

P11D Value

BiK Percentage

Monthly Tax Payable*

2020/2021 Tax

£42250

34%

£478.83

2021/2022 Tax

£42250

34%

£478.83

2022/2023 Tax

£42250

34%

£478.83

*Based on a 40% tax payer

So you decided on an electric company car. What is the best way to fund it then?

Electric cars still tend to be expensive compared with the equivalent petrol or diesel models which means more outlay. So which one do you choose?

The other side of the coin when looking at new electric cars is what are they likely to be worth in 3 years’ time? This is when things can get tricky, as the market for used electric cars is an uncertain one. If you were to look at a Renault Zoe for instance, for the past couple of years this is the fastest depreciating car in the country loosing 75% of its value over a three year period and doing 10,000 miles per annum. Others do fare much better but to alleviate all that guesswork consider leasing the car.

Leasing is becoming the most popular method to acquire new vehicles. It presents fixed costs for the period of the agreement, includes the Road Tax for the life of the contract and you can also add a full maintenance package to include all servicing, parts, labour and tyres. You have no concerns over the value at the end or disposal of the vehicle at contract end.

Leasing is also very tax efficient particularly if the business is profitable. You can offset 100% of the rentals against corporation tax. You can also claim back 50% of the VAT on the finance part of the agreement and 100% of the VAT on the maintenance part of the agreement.

For more information on electric cars, leasing or any other funding options please contact us at Horizon Vehicle Leasing Ltd. We have a wealth of knowledge on all the funding options and vehicles available in the market place. If you would like to have a quote on an electric or any other vehicle be it a car or commercial vehicle for business or personal use, please contact us via our website www.horizonvehicleleasing.co.uk, Call 01233 754800 or email neal@horizonvehicleleasing.co.uk.